Transcript

Transcript of the Global Financial Stability Report Press Conference with Jose Viñals, Financial Counsellor and Director of the Monetary and Capital Markets Department

September 30, 2009

Webcast of the press briefing

MR. MURRAY: Good day. I am William Murray, Chief of Media Relations at the IMF. This is the Financial Stability Report press conference. We are live, and on the record.

Joining me today is Jose Viñals, who is Financial Counsellor and Director of the Monetary and Capital Markets Department at the IMF which writes the Global Financial Stability Report. With Mr. Viñals is Jan Brockmeijer, Deputy Director of the Monetary and Capital Markets Department, and Peter Dattels, Chief of the Global Markets Monitoring and Analysis Division of that department.

Mr. Viñals will have some brief opening remarks which we will make available at the conclusion today, and after those remarks we will take your questions. Mr. Viñals.

MR. VIÑALS: Thank you, Bill, and good morning to you all. Thank you for attending the release of our latest Global Financial Stability Report. I would like to cover three areas in my remarks today. First, I will explain our overall assessment of the state of the global financial system; second, I will outline some of the potential challenges that we have identified along the road to financial and economic recovery; and finally, I will conclude with some policy recommendations. So, let me start with the assessment of the global financial system.

Over a year now has passed since the Lehman Brothers bankruptcy prompted a potential global financial meltdown. Fortunately, the situation is very different today due to two factors: unprecedented policy actions taken, and the overall improvement in economic prospects, that will be discussed tomorrow at the release of the WEO. We are on the road to recovery, but this does not mean that the risks have disappeared.

Policy actions to inject liquidity into markets, stabilize bank balance sheets, and restore credit market functioning have successfully reduced systemic risk in mature economies. With core markets stabilizing, emerging market risks have subsided while the new facilities and augmented resources of the IMF have helped cut tail risks in vulnerable countries.

With this return of stability, our broad estimate of global write-downs for banks and for nonbank financial institutions arising from the crisis now stands at roughly $3.4 trillion. This is around $600 billion lower than the last GFSR, largely as a result of rising security values.

This improvement is welcome, but we see significant challenges ahead, particularly for banks. In this GFSR, we have worked hard to improve our methodology for estimating bank write-downs for the 2007-2010 period. As a result, we now believe that about $1.5 trillion in bank write-downs is yet to be recognized, slightly more than the $1.3 trillion acknowledged thus far.

How do these write-down estimates translate into banks’ capital needs? The good news is that banks’ capital positions and earnings have substantially improved since the last GFSR; significant capital has been raised. Although our projections rest on a number of assumptions, if we take as a point of reference a capital ratio that regulators consider as a minimum, we conclude that bank balance sheets have been stabilized.

However, if the question is whether banks have enough bank capital to supply sufficient credit to support the recovery, we believe that the answer is no. There is still a substantial need for capital for these purposes as well as to safeguard the financial system against future shocks.

In addition, banks face another significant challenge, that of improving their funding profiles. Banks are facing a wall of maturities over the next 2-3 years of around $1.5 trillion of debt. It is vital that banks take advantage of the current favorable market conditions to improve their funding profiles and reduce the potential need for government-backed funding support.

Turning to emerging markets, conditions have also significantly improved thanks to the reduction in systemic risks in core markets and strong policy measures. Portfolio flows have generally rebounded, and sovereign and corporate debt spreads have narrowed, while domestic credit conditions have generally stabilized.

Still, challenges remain. Emerging market corporates face sizable foreign currency debt refinancing over the next two years, while access for some investment grade borrowers remain restricted. Countries facing external and domestic imbalances and with heavy reliance on cross-border banking flows will continue to remain vulnerable.

Notwithstanding this generally-improved picture, in this GFSR we looked closely at two issues that constitute potential pitfalls along the road to recovery. First, private sector credit growth continues to contract across the major economies as weak activity and household deleveraging restrain private sector credit demand and the financing capacity of both the bank and nonbanking sectors remain limited. However, total borrowing needs are not decelerating as rapidly due to the burgeoning public sector deficit. The lagged result is constrained credit availability.

Second, a more medium-term challenge is that of managing the fiscal and public debt consequences of addressing the crisis. Our analysis indicates that a 1 percentage point increase in the deficit relative to GDP increases long-term interest rates by 10-60 basis points, thus compounding the risk of adverse public debt dynamics. Countries with high debt-to-GDP ratios and large contingent liabilities are particularly vulnerable in this respect.

Let me just finish by outlining several key policy challenges that lie ahead. I will focus basically on four. First, supporting a sustained economic recovery requires bank balance sheets and capital to be further strengthened to ensure sufficient credit capacity. To this end, policies aimed at restoring credit supply by addressing bank balance sheet problems and encouraging the revival of securitization remain crucial.

If credit capacity is not restored, some central banks may need to continue credit and quantitative easing policies to avoid interest rates from rising or credit conditions from tightening further.

Second, getting the right balance between maintaining policy interventions and withdrawal of support to the financial system will be extremely important and also delicate, given that policymakers are in unfamiliar territory.

Third, sovereign balance sheets need to be managed prudently, and medium-term fiscal consolidation is necessary to avoid crowding out private borrowers or sparking a future public debt crisis. This is an instance where fiscal stability will most definitely bolster financial stability.

Finally, we need to adopt reforms to financial regulation that minimize the likelihood of future crises like the present one.

Let me conclude by reiterating the importance of avoiding complacency on the part of both the private sector and policymakers. If we fail to meet the challenges still being faced by the financial system in the present crisis and which I have just outlined, we risk re-igniting systemic risks and even derailing the economic recovery now in train. As you know, this is something we simply cannot afford.

This ends my formal remarks. My colleagues and I will be now happy to answer any questions you may have.

QUESTION: You say in the report that the U.K. is particularly vulnerable to a funding gap. Can you explain why that is and what you think the U.K. government should do about it?

MR. VIÑALS: In the report we look at the capacity of the financial system, both banks and nonbanks, to provide credit over the next couple of years, on the basis of the amount of capital which exists in the banking system, and of the deleveraging pressures of banks and the behavior of markets, taking into account the capacity that financial intermediaries other than banks can provide credit to the economy.

Then we look at the demand side for credit on the part of households and corporates and we relate that to a series of macroeconomic variables. What we find is that in the particular case of the U.K. there is a significant tension between the credit that would be demanded by both the private and the public sector, and the ability of the financial system to provide this credit at unchanged lending interest rates.

Now, the reason why in the U.K. there is this tension is because, in spite of the fact that private sector demand for credit has come down significantly due to the reduction of mortgage credit demand and the weak economy that has taken a toll on consumption and investment-related credit demand, still you have important issuance on the part of the public sector that tends to increase total credit demand.

On the supply side, what you have is that most of the credit is provided through banks and banks are deleveraging very rapidly. This means that the supply of credit in Britain is likely to face difficulties in meeting the demand for credit and that means that either there is continuing support on the part of the authorities to underpin the credit process or there would be higher lending interest rates or credit would be constrained.

This is not something that applies just to Britain, but also other mature economies that we looked at in the GFSR.

QUESTION: My question is about central banks and what can be done, just to resolve one question that has not been addressed in the book or in this crisis. When a country like ours has an open financial system….Who is the lender of last resort in this moment—

MR. VIÑALS: Well, I think you are looking at one specific case, which is one bank that was supported by the public authorities in its home country and which has a subsidiary in the host country, which would be Mexico, and that is one specific case. You are right, there are some banks—this is not the only example; there are other examples in other countries—that had been supported by their governments and even banks where the government has taken a stake in these banks.

I think that this is something which, of course, was necessary in order to prevent these banks from getting into deeper trouble. I think that this was to the benefit of these banks, but also to the countries where these banks were operating through branches or subsidiaries.

There are also many banks that have not had the need to resort to government intervention and in Mexico there are quite a number of them that have not. They have continued to perform fine. So, I think that all in all those that have had no trouble have continued to perform well and those who had been in trouble and have been helped by the public authorities, that has been also beneficial to those emerging markets where these banks were in place.

So, it is true that now there is a little bit of a blurring the line between the capital input by the public sector and the help that they have been obtaining from the central bank, and so on, but the important thing is that these banks have been kept afloat and subsidiaries have been functioning and continue to provide credit to the emerging markets.

QUESTION: I have two questions. First, yesterday the Spanish Minister of Finance has announced that they are going to remove the financial aid for the next year. I would like to know if you think it is appropriate timing or it is maybe too early. I do not know if other countries in Europe are going to do the same thing.

The second question, I would like to know from the IMF point of view how is the stress test doing in Europe, because we do not know much about the stress test. If you can tell us how is this doing.

MR. VIÑALS: First of all, on the specific piece of news that you mentioned, I do not know it in detail so I would not like to comment in detail about a piece of news that I do not know well enough.

But let me tell you that this is a general issue that has been raised, and that is which is the right time to withdraw some of the public support that has been provided either through central banks or the government, to the financial sector during the crisis. I think different countries have different situations and they may consider it appropriate to withdraw more or less gradually, depending on the circumstances, from some specific measures. So, I do not know exactly what this announcement is that you are referring to of last night, but this I would frame in the overall question of the exiting process. Different countries will have to do different things. Let me just make two comments there.

One is that it is very important that whatever countries do, removing or withdrawing support for the public sector is consistent with the maintenance of financial stability and that the process is internally consistent within the countries. Also, this process, when it is carried out more generally across different countries, is also consistent at the international level. For that, the G-20 in the communiqué that they had this past weekend, emphasized very much the need to work to develop solutions which are internationally consistent across countries.

On the second question, on the stress testing in Europe, we know that the European authorities are conducting a stress test based on the situation of the main banking groups in the area. This is something which is under way and that there are still decisions to be made about whether anything of it would be disclosed. So, we do not have any more information. I think that when the time comes it would be up to the ECOFIN Council to decide what sort of information is disclosed on the stress tests.

But let me tell you one thing. In addition to this exercise, we know that most—if not all—European Union countries are performing careful stress tests internally on the banking system, and this is something which is done on a routine basis by supervisors to know the strength of the financial system. The question is whether you disclose them or not. But this is part of the regular supervisory process and this has been done by most countries, not only in the European Union but also outside.

QUESTION: In your report you said that China’s credit growth runs the risk of creating an asset bubble so can you elaborate on that potential risk and how to balance the growth and also the potential risk. Also from your report I think you estimate Asian banks are not making big write-downs for banks, but when you say estimate in the future is bad assets from these massive fiscal and monetary policies.

MR. VIÑALS: I will take the first part of the question and Mr. Dattels will talk about the write-downs of the Asian banks. What we say in the report is that if one looks at the evolution of domestic credit in emerging markets, what we can see is that the situation is stabilizing in all of them so credit is stabilizing or recovering. China is the exception because credit is growing very fast.

Now, in an economy where credit is growing very fast, there are concerns that this could, after some point, lead to some excesses and lead to some asset price bubbles. We are not saying that this is happening already. What we say in the report is that there is a risk. This is why it would be important for the Chinese authorities to strike a balance between the need for credit to grow by enough to support the recovery of the Chinese economy, which is very important for China and for the world economy, and at the same time to do so in a manner that does not unleash financial imbalances in asset price bubbles that may have bad consequences in the future.

Now, one thing which is very important when you have a rapid expansion of credit is that you monitor very much the quality of the credit that you are granting in order to avoid that nonperforming loans will increase in the future.

MR. DATTELS: Regarding Asian banks, you will see that the loss rates on Asian banks are quite low, the lowest of all the regions. That is reflecting a some key elements. First, Asian banks were not exposed to subprime-related losses anywhere near to the same extent, as for U.K. banks, Euro Area banks, and the U.S. banking system .

Secondly, the overall cost of funding and the liability structure of Asian banks has proven to be relatively solid.

So, what you are seeing is the impact of the economic downturn on Asian banks, a very normal credit deterioration path. In that context, we have not focused on looking at specific capital needs for Asian banks as we have in Western banks.

QUESTION: You have alluded to the tension between strengthening bank balance sheets and the need to provide credit to the economy. The authorities provided abundant liquidity to the banks and is there anything they can do to get the banks to lend more such as, for instance, lowering deposit rates or even turning them negative, or are there any other measures you are suggesting of what the authorities should do to get the banks to lend more.

On another subject, on Central and Eastern Europe, can we have your assessment of the situation there? You think that the situation of the banking system there is stabilized or will the parent banks mainly in the West need to provide more capital to the subsidiaries in the area?

MR. VIÑALS: On bank lending and what can the authorities do to promote bank lending, one thing that we very much emphasize in the report is that, in order to provide the credit that the economic recovery will need going forward, you need to have some muscle as a bank. That means having, among other things, sufficient capital. We emphasize very much that banks need more capital. They need more capital in Europe; they need more capital in the U.S.; they need more capital in other parts of the world in order to have enough strength to provide more lending. So, that will be the first line of defense in terms of having capital raised.

There are other things that can also be done. Dealing with toxic assets or with impaired assets is also something that could help in this process. This is an area where we think that progress is relatively lagging because bank capital has been raised in a number of countries, more in the United States but also picking up more recently in Europe. So, during the first part of this year there has been significant capital-raising activity. We need more, but we are in the process. Where we are lagging behind is in dealing with impaired assets. Removing this uncertainty from banks’ balance sheets would also be important to support lending.

Now, if those are happening, if those are coming through, then there would be less of a need for central banks to support the banks through liquidity-providing operations, and so on. So, there is a trade-off. I think it is important that a lot of attention is put on capital raising and dealing with impaired assets, whereas as I mentioned, and I want to stress that, there is not enough progress being made.

Now, on Central and Eastern Europe, the assessment that we make in the report is that the situation there has improved. We think that this is important because only a few months ago there were very significant doubts about the health of the financial systems in those countries. I think that, although there may be some exceptions, now in Eastern Europe banking systems have reasonable amounts of capital and provisions to withstand the problems that may come associated with the economic cycle under way. If somehow these problems were to become more severe, there might be a need for doing more things. In principle, the situation has significantly improved.

One particular area of concern in Eastern Europe has to do with the cross-border flows and cross-border bank flows, because as we explained in the report, even if portfolio flows have been coming back to Central and Eastern Europe, they have not been coming back in the amounts needed to replace the reduction in cross-border bank flows.

This has been unlike what has happened in other emerging market areas, in Asia and Latin America, where other non-bank capital inflows have been more important and, therefore, more than compensated the reduction of bank flows.

Now, this means that even if parent banks in Central and Eastern Europe have maintained their financing commitments and their support, other banks have not. So, there is a question mark there and this is an area of uncertainty that we outline in the report.

This is also important in the light of the fact that, in Central and Eastern Europe, corporate refinancing needs are significant. Therefore, it will be important to have more inflows and, in particular, that this refinancing can go through in the future to avoid problems. So, certainly this is an area that requires vigilance.

QUESTION: According to IMF estimations, Turkey will be one of the countries that can be successful to avoid a crisis. This report, does this support that estimation? That is my first question. In that report, it specified that in emerging Europe, including in emerging Europe, quality is likely to deteriorate in the next years. What should have been done against that situation?

Thank you.

MR. VIÑALS: The second part of your question I did not understand very well. Could you repeat that?

QUESTION: The second one is, according to emerging Europe about loan qualities, and my first question is on the situation in Turkey, Turkey’s situation.

MR. VIÑALS: Let me just provide some responses on what you just said on Turkey. Our report does not specifically focus on Turkey, but we talk about the situation of emerging markets. What we say is that if you compare the situation of Turkey to other emerging markets, in terms of the financial conditions, the area where perhaps Turkey is a bit more vulnerable relative to other emerging markets, not in an absolute sense but relative to other emerging markets, may be in the refinancing of the corporate sector. So, that would be one thing.

Now, although we do not comment specifically on the financial system of Turkey in the report, let me just say that, given that you had a financial crisis not so long ago, there were a number of measures that were taken by the Turkish authorities that strengthened the financial system and I think that this is good news.

Some of these strength of the Turkey financial system and, in particular, the banking system, are the strong domestic funding base, the little reliance on foreign funding, low exposure to toxic products, and strong capital, profits, and liquidity. I think that these, together with the measures that have been taken during the crisis by the central bank in terms of cutting interest rates significantly and also by providing liquidity both in the lira market and in the foreign exchange market, have been very important to underpin the stability of the Turkish finance system.

QUESTION: Just a couple of quick ones. First of all, in last year’s GFSR you had quite an interesting table about the fiscal impact of the crisis, in other words how much different countries stood to lose as a result of the bad asset of banks. Is there some reason why—I cannot seem to find it this year—you do not have it? Is it because you were forced into a rather humiliating correction after the U.K. objected to one of the figures last year?

Secondly, you talk about the transfer of private risk to sovereign balance sheets I am just curious about. Can you say which of the, for instance, G-7 or maybe G-20 countries that have seen the biggest increase in their sovereign credit risk as a result of these?

MR. BROCKMEIJER: On your first question relating to the specificity of some of the information that we have provided, our objective very much in the GFSR is to provide an overview and to give an indication where on a regional basis the main vulnerabilities lie. So, we have moved away indeed from very specific precise numbers on individual countries, as it is not necessary to provide this overall picture. We thought the way we presented it this time in the report probably served our purpose better than last time.

On sovereign credit risk, it certainly shows that this is, of course, a very general problem that we are facing. We place it in our GFSR in the context of the constraint on credit. The point has been made already that private credit demand is declining, but in its place is a very sharp increase in sovereign credit demand and that still has to be financed.

In a number of countries, and the U.K. has already been mentioned in an earlier answer to questions, this does indeed pose strains. But it is also the case in the United States where private credit demand has slowed considerably, but the amount to be financed for government expenditure is very high.

QUESTION: On impaired assets, why is it that banks have only recognized roughly half of the losses that you expect them to do, and is there a policy that governments and the authorities should be implementing, whether it be accounting standards or something else, to ensure the losses are recognized. On capital, can you say how much more capital you think banks around the world should actually be raising so that you can get credit flowing well and why Europe seems to need a hell of a lot more capital than the U.S., for example.

MR. VIÑALS: You have asked a couple of questions that go to the crux of the calculations we have in the report. Let me have a shot and maybe my colleagues can complement my answer in a bit more detail.

On the losses, one thing which is very important and that we say in the report is that, in the United States, a bit more than half of the losses have been recognized, while in the Euro Area and in Britain, a bit less than half of the losses have been recognized.

Now, it is very important to see that, going forward, the big loss recognition will come from loans, from the credit book, while in the past, losses coming from the loss in valuation of securities through mark-to-market were faster to be recognized and these were particularly important in the U.S. given the type of products that was in the balance sheet of banks.

So, it should not be very surprising that the losses have been recognized sooner concerning securities where, if you have a drop in mark-to-market that is instant loss, while in terms of the loan book, the deterioration of the quality of the loan book only takes place as the cycle advances. So, it is natural that that would be a more protracted process over time.

There are instances where you may have some differences in accounting conventions, and things like that. For example, in Europe, the loss recognition process may be little bit slower than the U.S., because of a number of reasons, for example because the economic cycle is also less advanced, the economic credit cycle is less advanced; and because of accounting differences. You have a lot of small banks in Europe that are not reporting under the international financial reporting standards, and this makes loan provisioning and recognition slower. You also have lower frequency of financial reporting, so there are a number of reasons.

The basic idea to emphasize is that the losses that are ahead of us that still have to be recognized are those which are associated with a traditional deterioration of the loans having to do with the business cycle. That is why this is still to be recognized, because it still has not happened.

Now, on the amount of capital that would be needed worldwide, we have a table in the report where we look at the amount of capital which is needed in each area, and I hesitate to do the addition. We do not do it in the report, because each area has different accounting conventions. I think that it is not fair and not even appropriate to add those capital across different areas.

What you can do is to find out which area needs to raise what capital and basically what we are saying is that if you look at the capital to be raised to achieve a particular ratio, and if you want to be on the safe side and, therefore, take the metric which is the most demanding, for example in the U.S. you would need to raise capital that would be a bit above 1 percent of the total consolidated assets of the banking system; in the Euro Area, also a little bit more than 1 percent; in the U.K., a little bit more than 1 percent; and in mature Europe, which includes countries like Denmark, Iceland, Norway, Sweden and Switzerland, something which is a bit more than 2 percent. That, I think, relative to size is the right number to take for each of the particular areas. That can give you an indication of what is the effort that needs to be made in raising capital.

Let me emphasize that before you raise capital, it is important to conserve the capital that you have. Now banks are making money once again and there is a temptation to have big equity buybacks and big dividend payouts, and so on.

I think that capital conservation is something that is very important at this stage, because as the G-20 emphasized the other day in its communiqué, and as it has been said by the Basel Committee on Banking Supervision, we are going to a financial system where banks will need to have more and better capital. Therefore, if in the future you are going to have more capital and better capital, it is important that you start preparing for it now. So, conserve capital and keep it inside the bank.

MR. BROCKMEIJER: I would just like to add that the need for additional capital is also dependent on the extent to which banks will be able to shed problem assets. The more successful there they are in that field, the less additional capital is needed.

Secondly, an important difference between the U.S. and Europe is that U.S. banks have been more successful in raising large amounts of capital over recent months. So, they are ahead of the game there and hopefully banks elsewhere in the world, especially in Europe, will catch up.

QUESTION: Can you explain to me, please, the table on page 33 about the risk factors about the Italian banks please?

MR. DATTELS: The point of this table is to make the connection between the financial crisis and sovereign risk. It highlights that this sensitivity of sovereign risk to a common shock—in this case the global financial crisis—is greater for countries with high debt burden and high potential liabilities from the financial sector rescue, as reflected by the widening in bank credit default swaps..

MR. VIÑALS: The analysis that we provide, and this links also to the question that was asked by the gentleman here, of the transfer of risk from the private sector to the public sector, this is a very important issue. And as we outlined in our analysis of the sensitivity of interest rates to fiscal deficits, those countries that have higher debt-to-GDP ratios are in principle more vulnerable in terms of higher deficits leading to higher interest rates in the medium term.

So, I think that this is something that connects with that and that makes it very clear that in those countries which have high public debt, and also accumulating now high deficits as a result of the crisis, policies to manage the risks in the sovereign balance sheets are very important.

Also, policies of medium-term fiscal consolidation are crucial in order to avoid markets thinking that there may be some unsustainability problems there. I think this is important everywhere, because now debt levels have gone up, but more so in those countries where initial debt levels were already high before the beginning of the crisis and now have become even higher as a result of these interventions that the authorities have had to support the financial system and also of the fiscal stimulus measures and of the cyclical addition to deficits as a result of unemployment, and so on.

QUESTION: I have two questions. The report makes several references to the need to repair securitization as a crucial precondition for recovery. A year ago we were headlining that securitization was a time bomb that exploded, bringing down the world financial system, and now we are talking about repairing that.

I just wonder if you could explain the extent to which—I guess a lot of lay readers would think that securitization in itself is a problem and we should be talking about maybe banning it rather than repairing that bomb.

Secondly, on Spain, Spain on that table my colleague just mentioned comes out as sort of No. 2 in terms of protection from that risk. In other words in a very strong position, but the report also mentions that Spain is very vulnerable to a decline in commercial real estate. Do you think that is a serious problem, and what should the government do about that?

MR. BROCKMEIJER: I will be happy to respond to your securitization point. I believe we described it as a high-octane-type of growth of the securitizations markets that led up to the crisis. That is an environment that we have very clearly pointed out was not at all healthy and not one that we would like to see return, but underlying there are very strong positive aspects to the mechanism of securitization if done in a proper and transparent manner. The transfer of risk from the first issuer of the credit to other entities can be a great advantage to the economic system.

We describe at length in our GFSR in Chapter 2 various conditions that would have to apply for the securitization market to be made simpler, sounder, and more reliable than in the past. These suggest that the incentive structures should be well aligned to avoiding the build-up of risks. Credit agency oversight is an important factor, capital charges will have to be adjusted. Also, there has to be what they call “skin in the game,” retention policies, but in such a way that they are conducive to the proper functioning of the market rather than overburdening it.

So, it is a careful balancing act, but there are a lot of benefits that can be reaped from securitization. It is just a matter of making sure that you do not fall in the pitfalls on the other side.

MR. VIÑALS: Before answering the question that you posed for Spain, what Jan said is very important. There is no silver bullet. You need to do a range of things. It is like the antibiotics – you have to use a broad spectrum of measures in order to get the market back. I think this business of getting securitization markets to be simpler, safer and more transparent is crucial. We need securitization, but we need a different type of securitization than we had in the past and which avoids the excesses that led to so many problems.

But we do need securitization because it is a big source of credit support, as we need the continued issuance of covered bonds. In the report we made the point that covered bonds also are important in those jurisdictions which have the legal framework to issue them and where they have been functioning for a long time and this is mostly in a number of European countries, this is something that can be very useful to provide funding for the banking system and support credit. So, both things are useful.

Now, in Spain, what we say about commercial real estate: beware that the definition that we use in the GFSR of commercial real estate is one where we have included the credit to real estate developers. So, the problem in Spain is not so much commercial lending, offices, and things like that. A lot of credit has been given to real estate developers. So, it is not only residential credit.

I think that there are different ways of going about it. From the financial point of view, the way to cope with that is by having the banking system in as good a possible condition to cope with the risks that are coming. From this viewpoint, the initiative that has been taken by the Spanish authorities to set up a Restructuring Fund is a very important one and it fits within the schemes that we discussed in the report that need to be promoted in order to deal with the problems of the banking system.

I think that restructuring is one very important idea and concept that perhaps has been forgotten in many cases in dealing with the crisis. Money has been given, but sometimes you need to give money to restructure so that, when the crisis ends, you can have a banking system which is efficient and that can support the recovery when it is in place.

So, the idea of having this restructuring fund is a very important one and this is the best way to deal with any financial issues that may arise. Any other measures more directly oriented to dealing with the problems of the real estate sector were not taken in Spain and I think that the approach that has been taken to focus on this restructuring fund is the right one.

QUESTION: In April, referring to the Financial Stability Report of 2008, you had raised potential concerns on Nigerian banks in terms of their credit to the economy. Right now the banks are going through a lot of shake-up. There is the sacking of bank chiefs and then the security implications for them. I was wondering what is the implication for the economy, especially as you know that Nigeria plays a key role in Africa, and what could the central bank do differently.

MR. VIÑALS: Let me just say a couple of things about Nigeria. The first thing is that questions on the Nigerian economy will be better posed tomorrow when we have the WEO press conference, and also to say that whatever steps are taken in order to have a more efficient and more transparent, better functioning financial system is important for any country. In the short term, you may have to make some changes, but I think that trying to do things in order to improve the performance of any banking system is something that can only have good repercussions for the economy over the medium and long term.

MR. MURRAY: Thank you very much. This concludes our GFSR press conference. For our viewers, if you have any follow-up questions, please send an e-mail to Media@IMF.org, and we would be happy to follow-up.

Again, thank you to Mr. Viñals, Mr. Brockmeijer, and Mr. Dattels. Thank you all.